Should California Join the G-8?

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Christopher Edley, Jr., dean of the law school at UC Berkeley, is one of California's foremost public intellectuals (and easily its funniest, as was apparent to anyone who watched him joke his way through service on an ill-fated state tax reform commission last year). In today's New York Times, he offers an intriguing solution to a fundamental problem facing California and other states: how to balance their budgets in bad economic times without the tax hikes and spending cuts that can make such bad economic times even worse.

Edley's idea? Grant California and other states far more economic and budget autonomy. Since states can't print their own money (forcing them into economyically depressing tax hikes and spending cuts), states should be permitted to borrow from the U.S. Treasury, which can print money. The federal government would be able to mandate repayment in future years by deducting the loan amounts from federal matching funds for programs such as Medicaid.

The goal: states could protect programs in bad times with such borrowing--but would be forced to make cuts in response to diminished federal money when times got good. That's the way government budgeting is supposed to work--spend and help people in bad times, stay lean in good.

In other words, Edley is suggesting that California, the world's eighth largest economy, be able to behave more like its own country, with the ability to make macroeconomic decisions including the management of its money supply. Edley writes:

"Here in California, where people tiresomely boast that the state’s gross domestic product exceeds that of all but seven nations, I keep expecting a ballot initiative demanding admission to the Group of 8 industrialized nations. I’d consider voting for it, too; then maybe Washington would work as hard to synchronize its economic policy with Sacramento as it does with Tokyo and Bonn. The lack of coordination within the United States — and, equally important, the failure to recognize the states as macroeconomic players — helps explain our sluggish recovery.

"To make matters worse, several states have country-sized G.D.P.’s, but none has the macroeconomic tools of an independent country."

Edley notes that the auto companies and banks were permitted to borrow from the treasury. Why not states?

Here's a Zocalo Public Square panel I moderated on the topic of California independence this spring.